Ratio of Debt-to-Income
Your ratio of debt to income is a tool lenders use to determine how much of your income is available for a monthly mortgage payment after you meet your various other monthly debt payments.
About the qualifying ratio
Usually, conventional loans require a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be spent on housing costs (this includes principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).
The second number is what percent of your gross income every month that can be applied to housing costs and recurring debt together. Recurring debt includes credit card payments, vehicle loans, child support, etcetera.
For example:
With a 28/36 ratio
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, use this Mortgage Qualifying Calculator.
Guidelines Only
Don't forget these are just guidelines. We'd be thrilled to go over pre-qualification to help you determine how large a mortgage loan you can afford.
At AmeriBest Mortgage, we answer questions about qualifying all the time. Call us: 3217777277.